Exxon Mobil profit falls 33% on lower oil prices

Despite weak quarter, a record $45 billion profit for the full year

By

SteveGelsi

NEW YORK (MarketWatch) -- Exxon Mobil Corp. on Friday said fourth-quarter net income fell 33% as production dropped and capital spending rose as it absorbed a body-blow from a historic plunge in crude prices.

But the plunge was not enough to rob it of its best full-year profit ever: $45.2 billion.

Finishing out a roller-coaster year of record oil prices followed by a rapid plunge in the face of the financial crises, Exxon Mobil
XOM, -1.98%
earned $7.82 billion, or $1.55 a share in the three months ended Dec. 31, down by a third from $11.66 billion, or $2.13 a share, in the year-ago period.

Analysts surveyed by FactSet Research forecast earnings of $1.52 a share.

Revenue fell to $85 billion from $117 billion.

The world's largest corporation and component of the Dow Jones Industrial Average
DJIA, -0.35%
said lower oil prices impacted its profit by about $3.2 billion.

Shares of Exxon Mobil failed to hold early gains, dragged lower with the broad market to end the session 52 cents lower at $76.48. Meanwhile, fellow Dow component and oil major Chevron
CVX, -1.55%
also posted better-than-expected earnings. See full story.

In the previous quarter of $100 oil and a record crude price of $147 a barrel, Exxon Mobil broke its own earnings record as the most lucrative ever by any company in history with a third-quarter profit of $14.83 billion, or $2.86 a share, up 58% from the year-ago period, for the three months ended Sept. 30.

At the start of the fourth quarter, crude-oil futures closed on Oct. 1 within a whisker of the $100 mark at $98.89 a barrel.

By late December, oil tumbled below $34 a barrel on jitters tied to the global financial meltdown. See full story.

"You don't like to see earnings decline...but it's a sold beat," Pride said of the company's better-than-expected earnings results. "It's a good report that showcases Exxon's capital flexibility."

Exxon Mobil remains the most underleveraged of the oil majors, with the lowest cost of production, he said.

Exxon Mobil may channel some of its vast cash assets away from its practice of buying back several billion dollars of its own stock each quarter, he said.

Exxon signaled it'll buy back $7 billion in its stock in the first quarter, down from $8 billion in the fourth quarter.

Pride expects Exxon Mobil to gain market share and possibly put some of its resources to work to buy up oil exploration rights or other properties.

Speculation about a possible acquisition by Exxon Mobil has been rampant on Wall Street, with low oil prices and cheap valuations of energy firms stoking talk of possible targets for the company, he said.

In one recent example of an oil major snapping up assets, Total SA
TOT, -0.41%
bid $617 million in cash for Canadian oil sands producer UTS Energy Corp.(UTS).

On a conference call with reporters, Exxon executives Ken Cohen and David Rosenthal said the oil giant is actively looking at acquisitions, but they declined to provide any further specifics.

Exxon Mobil's cash supply fell to $31.4 billion at the end of the fourth quarter from $36.7 billion at the end of the third quarter as a result of the timing of expenditures and lower earnings, Rosenthal said.

Exxon Mobil will maintain flexibility on the size of the stock buybacks as a way to return value to shareholders after paying for dividends and capital programs.

Cohen and Rosenthal called on U.S. Congress to increase the amount of oil exploration sites both on shore and offshore.

The U.S. has the potential to create 160,000 new jobs and generated $1.3 trillion for the economy over the next 20 years by allowing more drilling, they said.

Exxon breaks record for annual earnings

Despite lower fourth-quarter earnings, the three earlier quarters of the year propelled Exxon Mobil past its own record set in 2007 for the fattest year of profits in the corporate history.

Lifted by $100 oil in the first half and a record of $147 per barrel early in the third quarter, Exxon Mobil wrapped up 2008 with a yearly profit of $45.2 billion, up 11% from $40.6 billion in 2007.

While Exxon Mobil has been seen as a defensive stock of late, it has drawn a cooler reception on Wall Street in recent days, with Goldman Sachs and UBS both cutting ratings on the stock this week.

Goldman on Thursday cut its rating to neutral from buy, removing the world's largest corporation from its Americas buy list.

"We continue to have a favorable long-term view of the company and believe the stock should provide steady, above-market returns over the long run," analysts at Goldman Sachs said. "However, as we get closer to the bottom of the energy cycle, we continue to transition top picks into select higher-beta stocks and away from defensive stocks like Exxon." Since it was added to the Americas Buy list on Oct. 12, Exxon shares are up 8.4% verses a loss of 12.9% for the S&P 500
SPX, -0.24%

On Wednesday, UBS downgraded Exxon Mobil to neutral from buy, with the broker saying the oil giant's 21% outperformance to peers seems overdone. "With liquidity improving and our view that oil prices have put in the lows, we expect investors to begin to step out on the energy equity risk curve making XOM a less attractive 'relative' investment," the brokerage said.

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